The performance of consumer discretionary businesses is closely linked to economic cycles. Over the past six months, it seems like demand trends may be working against their favor as the industry’s returns were flat while the S&P 500 was up 3.4%.
While some companies have durable competitive advantages that enable them to grow consistently, the odds aren’t great for the ones we’re analyzing today. With that said, here are three consumer stocks best left ignored.
Stitch Fix (SFIX)
Market Cap: $525.6 million
One of the original subscription box companies, Stitch Fix (NASDAQ:SFIX) is an online personal styling and fashion service that curates personalized clothing selections for customers.
Why Should You Sell SFIX?
- Demand for its offerings was relatively low as its number of active clients has underwhelmed
- Persistent operating margin losses suggest the business manages its expenses poorly
- Poor free cash flow margin of 1.6% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Stitch Fix is trading at $3.90 per share, or 0.4x forward price-to-sales. Dive into our free research report to see why there are better opportunities than SFIX.
United Parks & Resorts (PRKS)
Market Cap: $1.64 billion
Parent company of SeaWorld and home of the world-famous Shamu, United Parks & Resorts (NYSE:PRKS) is a theme park chain featuring marine life, live entertainment, roller coasters, and waterparks.
Why Do We Pass on PRKS?
- Sluggish trends in its visitors suggest customers aren’t adopting its solutions as quickly as the company hoped
- Free cash flow margin is expected to remain in place over the coming year
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $33.70 per share, United Parks & Resorts trades at 8.6x forward P/E. Read our free research report to see why you should think twice about including PRKS in your portfolio.
Clarus (CLAR)
Market Cap: $104.9 million
Initially a financial services business, Clarus (NASDAQ:CLAR) designs, manufactures, and distributes outdoor equipment and lifestyle products.
Why Do We Avoid CLAR?
- Sales trends were unexciting over the last five years as its 2.3% annual growth was below the typical consumer discretionary company
- Negative free cash flow raises questions about the return timeline for its investments
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Clarus’s stock price of $2.73 implies a valuation ratio of 14.4x forward P/E. To fully understand why you should be careful with CLAR, check out our full research report (it’s free).
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